Monday, June 30, 2003

My inexperience in matters European is criticized by
correspondent "Paul." Informed by the history of New Europe, he
writes my faith in the falling dollar's restorative powers is completely
misplaced:

...I do not believe in the benefit of weak currencies. History shows that
weak currencies have been associated with weak countries, and that this
combination rarely resulted in anything good. I am for a strong dollar. As an
alternative, we could consider adopting the Euro. (If nobody has yet advanced
this idea, remember you heard it first from me.) This would eliminate any
exchange advantages or disadvantages when trading with the EU, and we could
then measure the results in purely competitive terms (price, quality, and
service).

But monetary union is an old idea that just won't die. It may be the next big
thing. Consider what Bartley is saying in today's WSJ:

...if the euro can replace the franc, mark and lira, why can't a new world
currency merge the dollar, euro and yen? The euro's recent recovery against the
dollar almost certainly establishes its credibility as a permanent currency.
While major eurozone economies remain troubled, practically no one so far is
blaming the European Central Bank.

This suggests success for the grandest reform of all, a supra-national central
bank. The ECB Executive Board and Governing Council could yet become political
targets, of course, especially if much-discussed deflation actually sets in.
But even with strikes in Germany and France, few politicians seek a way out in
a little more inflation or currency depreciation; few complain about the loss
of "monetary sovereignty."

World money, with a world central bank, seems a next logical step.

How are we to think about this? Try this approach. What is the essence the
concept "nation?" If we had to list all the features of
"nation," what would be left if we discarded everything that could
be taken away?

Culture, language, history, all that stuff can get thrown out -- just two and
only two features remain on the list.

The first is simple border -- an enforcible physical boundary. The
second is currency -- an enforcible economic border.

So what must be discussed, it seems to me, is whether monetary union is
genuinely "rational" or part of the irrational and highly suspect
elitist European political movement that's come to be called transnational
progressivism. If this makes me sound like the old wacko John Birch Society
guys who ranted against the U.N. and the dangers of upcoming world government
-- well, I guess I'll just have to live with it.

Thursday, June 26, 2003

Those who know tell me the Boskin Report is not as new as I seem to think.

To most of us the Report's conclusions are extremely surprising,
however, so one can't help but wonder what this particular report says to
current policy.

First, judging from various blogosphere discussions nobody is going to yield
anything on Social Security/Medicare, and rightly so in my opinion. Face it --
discovering an unexpected bonus doesn't tell you what to do with it, nor does
it change yours or others' definitions/preferences.

Second the Boskin/Bush surplus -- or discovery, or whatever you call it --
cannot help but be a victory for American capitalism's supporters and a defeat
for its critics. For half a century boomers' relationship to Social Security
has weighed like an incubus on economic policy discussions. Critics debited
neither Security's Ponzi structure nor the population bulge for the upcoming
"crisis." Rather, they placed direct or indirect blame on American
market capitalism itself.

The system caused us to spend too much and save too little. Or we were selfish,
unwilling to devote sufficent resources to future eldercare. And of course we
listened not to the wise advocates of government, of centralized organization
and planning, but to the false prophets on the side of irrational markets and
greedy corporatism.

And there was an even more esoteric plane of criticism, the neo-Marxist
critique. This school told us "the system," never able to generate
enough economic "surplus" for us to buy back what we have produced,
must ultimately fail -- as evidenced for example by the upcoming, obvious, and
widely known internal contradiction of the Social Security crunch, which will
leave our future elders homeless and starving in the street.

And now we learn these critics warned of yet another false quagmire.
American capitalism, we now know, has already produced the "economic
surplus" needed to solve the Social Security crisis. And so long as things
remain more-or-less as they are today, during the next forty years American
capitalism will produce enough additional economic surplus to
solve the "national debt" and "Medicare" crises as well.

Once again: finding the Boskin/Bush surplus doesn't tell us what to do with
it. As Business Week sums it up:

Until now [this problem] has been portrayed as an intergenerational conflict
between young, working taxpayers and old, retired beneficiaries of government
transfer payments. Boskin demonstrates that there may also be a conflict among
retired boomers with differing levels of savings. Upper-crust boomers will
control a large share of the nation's wealth. If that wealth is taxed as it's
supposed to be under current law, there may not be a serious problem covering
the costs of Social Security and Medicare, whose stability is crucial for
middle- and lower-income retirees. Yet wealthy boomers may fight to have tax
rates cut in order to keep more of their retirement savings.

The political fight over redistribution will continue, in other words, with an
outcome presently unclear. What is clear right now, however, is that the
system worked.